Chile has stood out in Latin America – until now, at least – for the solidity of its economy. The country has applied the old biblical recipe of saving during the fat years in anticipation of the lean (also known as countercyclical policies).

Like the rest of the region, Chile benefited from the recent boom in raw materials, specifically from a record copper price. The countercyclical approach was partly forced on the government because it could not risk pumping the windfall earnings into the economy for fear of creating massive inflation. As a result, Chile managed to save some $22bn, equivalent to six months' export earnings, in a sovereign fund, which is now providing a comfortable cushion from the shock of the international crisis.

The one word the governing and entrepreneurial elite dread is protectionism. Chile has signed more free trade agreements than any other country in the world, with 54 major nations in Asia and Europe, and including the EU and the US. International trade accounts for more than 60 per cent of its GDP. The most dynamic sector of its economy, where the highest wages are paid, is linked to the external market. So the first and greatest worry for Chilean business and workers would be protectionist policies, coming on top of reduced demand.

A second, equally grave, concern is the danger that foreign investment may slow down or even dry up. Foreign mining companies, for example, account for a major share of mineral exports. Lower or no outside investment would mean lower export growth and fewer jobs as well as the loss of technology expertise.

In the 1970s, Chile was already a prime laboratory for the neoliberal policies applied later in many countries. The complete deregulation of the financial markets and the systematic reduction of the state started immediately after the dictatorship of Augusto Pinochet imposed its brutally repressive rule in 1973. Under the guidance of Milton Friedman and the Chicago school of economics, Chilean technocrats applied shock tactics. Using the criteria of its comparative advantages, Chile moved from a protected to a wide open economy. Many of its fledging industries disappeared while raw materials and agricultural products prospered.

The hastily deregulated financial system collapsed spectacularly in 1982, and the huge debts of the private banks were absorbed by – what else? – the state. It was in many ways an anticipation of what has now happened to the international banking system. The Chilean solution to a de facto nationalisation of the banks was to create "A" and "B" shares. "A" group shareholders, the former owners, received no dividends until the new "B" share owners were fully reimbursed, which took some 15 years.

Ever since, the Chilean banking system has operated under a number of restrictions. Speculative capital was long curbed by reserve requirements, and private pension schemes are limited in the amounts they can invest abroad. With the restoration of democracy in 1990 some of the more blatant injustices began to be redressed – but without changing the essentials of the previous economic policies of open trade, including the lowest tariff barriers in the region. Chile now holds two contradictory records: it has been more successful than any other country in the region in reducing poverty; and it ranks among the most inequitable nations in the world.

The rest of Latin America, like Chile, is better prepared to resist the economic downturn than on previous occasions. The recent high prices for its raw materials – soya, wheat, wood pulp, oil, gas, and iron, among others – has allowed it to build up reserves. Now their concern is that the rich economies should not exacerbate the crisis by closing down credit and investment in the developing world.